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Rent Regulation: The Right Tool for the Right Job

Far too many discussions about the 'failures' of rent control don't take into account what such regulation is really designed to do -- namely, provide housing stability and protect against displacement. Before allowing rent control regulation to wither in New York City and elsewhere, it's a good idea to consider how much residents and society overall benefit from these imperfect policies.

New York City's rent regulations are being slowly strangled. The current law, which allows apartments renting for more than $2,000 to be decontrolled, is outdated. Amidst spiraling rents, New York has lost 99,000 rent regulated units in the last decade to this law. In a move to "preserve affordable housing," New York Governor Elliot Spitzer is attempting to rescue the city's rent regulations with a new proposal to banish or possibly increase the deregulation threshold. This legislation will need strong political support to pass, but the first step might be taking time to recognize the real reason we use rent regulations, and what it is and isn't best at achieving.

Though localities from New Jersey to Washington, D.C. and California have rent control, New York City is probably best known for it. The city's residents have organized to win rent regulations in times of housing shortages or sharp inflation (the Great Depression, World War II, and the 1970s and 80s) to control skyrocketing rents that would eat up too much of their income and cause large-scale displacement. The result has been that though rents still increase, they do so predictably rather than in spikes and troughs that would cause financial hardship and even homelessness.

Yet, there are widespread misunderstandings about the purpose of rent control. I was reminded of this reading my colleague Lance Freeman's provocative blog post regarding rent regulation on Planetizen Interchange. Somehow, the public discussion about rent regulation has often been misleadingly recast into the question as Freeman poses it -- is it the best way to provide affordable housing? But criticizing rent regulation as a blunt tool for providing low-income housing is like criticizing rent regulation for not increasing home ownership: that's a worthy goal, but not the primary one rent regulation was intended to address. Rather, rent regulation creates something just as important: stable homes.

No matter how one wanted to organize the ideal city, housing security would be part of it. No community can function effectively if large numbers of its residents are regularly displaced or perpetually at risk of being displaced. That's why the United Nations includes "insecurity of tenure" in its definition of a slum.

In the U.S., housing security is most often achieved through home ownership. But while two-thirds of U.S. households own their home, the government incentives and subsidies for home ownership don't work as well in high-cost and landlord-heavy New York -- so two-thirds of households there rent. Rent regulation simply provides renters two of the same types of stability that home owners enjoy and that everyone deserves and needs. First, rent control makes housing costs predictable, which is vital for any long-term financial plans a family may have. Second, it makes the location of one's home more stable as well, which is vital since displacement when the rent goes up can disrupt one's job, children's schools, child care arrangements, health care access, family networks, and more.

The importance of housing stability gives the lie to another common idea, that rent control is something only the poor need. The last revision of New York's rent regulations stripped its protections from apartments renting for more than $2,000 and tenants making more than $175,000. But everyone needs housing stability -- and policies that have a broad constituency, like Social Security, are politically more secure than ones that target only the poor. Landlords push to reduce eligibility for rent regulation because making it a program for the poor alone will make it a program vulnerable to elimination. While eliminating protections for upper-income brackets today may sound satisfying to class warriors, remember that the first time New York luxury apartments were exempted from rent control (in 1958) "luxury" meant rents above $416 a month. In the same way, time and inflation mean the $2,000 cap in place today will slowly strangle rent control if it's not repealed. Governor Spitzer's proposal would repeal that cap, but it's rumored he'll leave the income ceiling in place. A better proposal would extend the security of rent control to the greatest number of people possible.

Another misconception is that rent regulation is some kind of giveaway or subsidy. But under rent control, rents go up regularly, and landlords are guaranteed a profit by the board that sets the increases. Furthermore, landlords can and do pass on costs for everything from smoke detectors to building improvements in addition to the scheduled increases. And while the cost of new stairwell windows may be paid off in five or ten years, the related increase remains a part of tenants' rents forever. The result is that while homeowners making the last payment on their mortgage today have just bought a house at 1977 prices, rent controlled tenants' monthly payments rose throughout that thirty-year period. In the cases I've seen, long-term rent-regulated tenants are paying more than their suburban homeowning peers -- with all the equity going to the landlord. Hardly a giveaway to renters over homeowners.

We need to confront the misleading conception of rent regulation as a subsidy. Rents are always set within a legal framework, and just because landlords think they could charge more rent under a different legal framework doesn't mean they're subsidizing anyone. Landlords could charge higher rents when racial restrictions were legal. (Jewish and African Americans tenants paid more in a market where their options were restricted, after all.) But that doesn't mean that the Fair Housing Act subsidizes minorities' rents, it just means that the social and legal context in which rents are set was improved.

In the end, the primary question is not what the rules about rents should be, but what you want the outcome of those rules to be. As Lance Freeman points out, vouchers could be used to produce the exact same effect as rent control: Landlords could charge higher rents, then pass that higher rent to the government in the form of taxes, the government could then give it to the tenant as a voucher, and the tenant could pass it on to the landlord to make up the new, higher rents. Tenant organizations have preferred the less circular policy of rent control, but the means are less important than the goals. The questions relevant to a discussion of rent regulation are: Do you want protections against displacement? And will the residents of your city benefit if rents are a predictable percentage of their budget, and the location of their home is stable year to year?

Housing stability is necessary for all of us, and rent regulation is a time-tested way to cement it in place. Such policies have only ever been won with mobilized tenants. New York--and the nation--need more such pressure now.

Greg Smithsimon is an assistant professor of Urban Studies at Barnard College in New York City.

Comments

Comments

A Surprisingly Good Argument

I've always considered rent control to be one of the stupidest policies ever concocted in the housing sphere, for all the voluminous avalanche of reasons used by economists and sane urban planners. But the author actually makes some sound points, by first acknowledging that rent control does nothing for housing affordability, and then recasting the goal as "housing stability," which is a legitimate objective.

But the author is unduly dismissive of the impact that rent control has on landlord expectation of a reasonable rate of return, resultant deterioration of housing stock, and the bureaucratic inefficiency of rent control administrators. All of these factors combine to make rent control an unacceptable policy choice, in my opinion. I think the author's alternatives for promoting housing stability, such as the voucher program, are more efficient and a better way to achieve his policy objectives.

agreed

I am personally very much against rent control. Or, if anything, the rent control should be applied in very specific cases only, like old rental houses where the house owner tries to raise the rents knowing the people won't move out and will pay even a ridiculous amount.

In Romania the law is very vague on this matter, and is suppressing the market with house and apartment rentals. I was thinking in extending my company's reach to the real estate niche, but this was one of the main reasons that stopped me, the regulations just changed a previously very liquid market into a dead zone.

Thanks Greg for a new

Thanks Greg for a new perspective on the housing debate. Housing security is a fundamental concern to all Americans, and thank you for bringing a moral and ethical concern that isn't brought up in many economic policy analysis reports on rent control.

Leoule Goshu
Student, Harvard University

No Mention of Costs

The reason economists never find rent control appealing is that they have to focus on the costs as well as the benefits. There is no doubt that the lucky few (who often happen to be older, richer and whiter than the unlucky majority) benefit greatly from rent control. Greg above, focuses specifically on the benefits to those few, which are great indeed, and to the extent he mentions costs, he just mentions the cost to landlords (and who doesn't love to hate landlords... words like "greedy" and "slumlord" come to mind instantaneously).

In reality, the costs of rent control are born by those unlucky others who don't have rent controlled apartments (and are more likley to be younger, poorer and browner) through higher rents, poorly maintained buildings and less rental stock...costs which have been detailed meticulously in many studies and brought to light in Mr. Freeman's post (http://www.planetizen.com/node/23134). So you, maybe you have to infer it from reading dry economic analyses, but you can definitely see the moral and ethical concerns raised when you pass along the cost of those rent control benefits to a younger, poorer, browner majority...one can come up with all kinds of ethical dilemmas with presumtous questions like "is it right to make a poor, single mother pay a higher rent than she would otherwise have to so a $500K a year income hedge fund manager can enjoy below market rent on a park avenue penthouse?" Just something to think about.

Rent control is easy to justify when you don't talk about the costs (or at least ignore the costs to society by focusing solely on the costs to landlords).